SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____ TO _____
Commission File No. 1-8796
QUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0407509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45433, 180 East 100 South, Salt Lake City, Utah84145-0433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(801) 324-5000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of July 31, 1999
Common Stock, without par value 82,699,909 shares
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1999 1998 1999 1998 1999 1998
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 177,858 $ 179,157 $ 455,672 $ 479,240 $ 882,688 $ 905,746
OPERATING EXPENSES
Natural gas and other
product purchases 55,030 60,250 171,035 202,292 333,911 375,253
Operating and maintenance 51,077 53,529 103,482 104,431 211,409 203,838
Depreciation and amortization 33,570 28,337 67,202 58,409 133,950 116,928
Write-down of oil and gas properties 34,000 6,000
Other taxes 7,632 11,957 16,042 21,968 30,866 36,802
TOTAL OPERATING EXPENSES 147,309 154,073 357,761 387,100 744,136 738,821
OPERATING INCOME 30,549 25,084 97,911 92,140 138,552 166,925
INTEREST AND OTHER INCOME 16,428 7,449 28,496 13,777 32,921 26,950
EARNINGS (LOSS) FROM
UNCONSOLIDATED AFFILIATES (1,586) 288 (126) 640 2,151 4,816
DEBT EXPENSE (12,428) (10,946) (25,399) (22,460) (50,910) (44,740)
INCOME BEFORE INCOME TAXES 32,963 21,875 100,882 84,097 122,714 153,951
INCOME TAXES 9,893 5,679 34,448 27,019 36,459 46,659
NET INCOME $ 23,070 $ 16,196 $ 66,434 $ 57,078 $ 86,255 $ 107,292
EARNINGS PER COMMON SHARE
Basic and diluted $ 0.28 $ 0.19 $ 0.80 $ 0.69 $ 1.04 $ 1.30
Average common shares outstanding
Basic 82,678 82,308 82,660 82,255 82,665 82,230
Diluted 82,870 82,864 82,814 82,863 82,890 82,830
Dividends per common share $ 0.165 $ 0.165 $ 0.33 $ 0.3225 $ 0.66 $ 0.6375
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 1998
(Unaudited)
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $ 17,489
Accounts receivable $ 109,479 $ 104,080 177,630
Inventories 23,262 22,650 37,817
Purchased-gas adjustments 12,506 2,067
Other current assets 8,962 11,195 11,864
Total current assets 141,703 150,431 246,867
Property, plant and equipment 3,178,668 2,810,468 3,104,522
Less allowances for depreciation
and amortization 1,424,361 1,265,470 1,356,881
Net property, plant and equipment 1,754,307 1,544,998 1,747,641
Securities available for sale,
approximates fair value 80,032 55,949 56,910
Investment in unconsolidated
affiliates 70,877 44,031 58,638
Other assets 50,158 47,702 51,225
$2,097,077 $1,843,111 $2,161,281
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $ 1,629 $ 7,274
Short-term loans 112,100 77,600 $ 221,100
Accounts payable and accrued
expenses 139,711 132,477 209,756
Purchased-gas adjustments 1,453
Current portion of long-term debt 6,006 6,096 6,006
Total current liabilities 260,899 223,447 436,862
Long-term debt, less current
portion 656,189 503,644 615,770
Other liabilities 27,275 27,960 27,450
Deferred income taxes and investment
tax credits 216,069 210,859 203,241
Common shareholders' equity
Common stock 302,521 294,530 298,888
Retained earnings 601,921 572,303 564,958
Other comprehensive income 36,158 20,541 18,067
Note receivable from ESOP (3,955) (10,173) (3,955)
Total common
shareholders' equity 936,645 877,201 877,958
$2,097,077 $1,843,111 $2,161,281
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
6 Months Ended
June 30,
1999 1998
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 66,434 $ 57,078
Depreciation and amortization 70,525 60,218
Deferred income taxes and
investment tax credits 1,426 (11,047)
(Earnings) losses from unconsolidated
affiliates, net of cash distributions 1,337 (505)
Gain from the sales of securities (19,780) (4,083)
Gain from the conversion of ownership
interest in Nextlink affiliate (3,536)
119,942 98,125
Changes in operating assets and liabilities 21,281 76,686
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 141,223 174,811
INVESTING ACTIVITIES
Capital expenditures
Property, plant and equipment (79,884) (76,447)
Other investments (16,332) (17,074)
Total capital expenditures (96,216) (93,521)
Proceeds from disposition of property,
plant and equipment 4,923 2,263
Proceeds from the sales of securities 27,466 5,800
NET CASH USED IN INVESTING
ACTIVITIES (63,827) (85,458)
FINANCING ACTIVITIES
Issuance of common stock 3,629 3,792
Common stock repurchased (2,235) (584)
Issuance of long-term debt 174,327 1,300
Repayment of long-term debt (136,002) (38,368)
Decrease in short-term loans (109,000) (53,600)
Checks outstanding in excess
of cash balances 1,629 7,274
Payment of dividends (27,271) (26,533)
Other 38 95
NET CASH USED IN FINANCING
ACTIVITIES (94,885) (106,624)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS $ (17,489) $ (17,271)
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
Note 1 - Basis of Presentation
The interim financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
results for the interim periods presented. All such adjustments are of a
normal recurring nature. Due to the seasonal nature of the business, the
results of operations for the three-and six-month periods ended June 30,
1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999. For further information refer to
the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31,
1998.
Note 2 - Comprehensive Income
Comprehensive income is defined as any nonowner change in common equity.
Generally, comprehensive income includes earnings reported on the income
statement plus changes in common equity formerly reported on the balance
sheet only. Questar's other comprehensive income, which are noncash
transactions, includes changes in the market value of the investments in
securities available for sale and foreign currency translation
adjustments.
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
1999 1998 1999 1998
(In thousands)
<S> <C> <C> <C> <C>
Comprehensive Income:
Net income $ 23,070 $ 16,196 $ 66,434 $ 57,078
Other comprehensive income
Unrealized gain (loss) on securities
available for sale 8,150 (15,960) 29,786 (3,986)
Foreign currency translation
adjustments (272) 71 (491) 55
Other comprehensive income
before income taxes 7,878 (15,889) 29,295 (3,931)
Income taxes on other
comprehensive income 3,014 (6,081) 11,204 (1,506)
Other comprehensive income after
income taxes 4,864 (9,808) 18,091 (2,425)
Total comprehensive income $ 27,934 $ 6,388 $ 84,525 $ 54,653
</TABLE>
Note 3 - Operations by Line of Business
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1999 1998 1999 1998 1999 1998
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS
Market Resources $ 95,848 $ 94,214 $ 190,491 $192,340 $380,942 $389,585
Regulated Services
Natural gas distribution 69,952 74,268 242,045 266,057 451,742 474,887
Natural gas transmission 9,754 9,088 18,775 18,153 37,778 36,633
Other 563 588 1,112 1,024 2,443 1,462
Total Regulated Services 80,269 83,944 261,932 285,234 491,963 512,982
Other operations 1,741 999 3,249 1,666 9,783 3,179
$ 177,858 $ 179,157 $ 455,672 $479,240 $882,688 $905,746
REVENUES FROM AFFILIATES
Market Resources $ 18,374 $ 19,744 $ 39,577 $ 36,612 $ 80,288 $ 67,030
Regulated Services
Natural gas distribution 222 119 431 119 1,381 876
Natural gas transmission 17,282 17,511 35,427 35,695 71,133 70,024
Other 52 21 80 41 138 98
Other operations 10,480 9,705 22,915 20,266 42,356 39,685
$ 46,410 $ 47,100 $ 98,430 $ 92,733 $195,296 $177,713
OPERATING INCOME (LOSS)
Market Resources $ 16,911 $ 14,586 $ 31,254 $ 28,941 $ 23,842 $ 57,689
Regulated Services
Natural gas distribution (2,470) (1,541) 35,337 36,670 56,117 56,948
Natural gas transmission 13,908 14,046 26,972 26,852 53,318 51,885
Other (149) (399) (217) (615) (683) (1,614)
Total Regulated Services 11,289 12,106 62,092 62,907 108,752 107,219
Other operations 2,349 (1,608) 4,565 292 5,958 2,017
OPERATING INCOME $ 30,549 $ 25,084 $ 97,911 $ 92,140 $138,552 $166,925
NET INCOME (LOSS)
Market Resources $ 10,432 $ 9,468 $ 18,685 $ 19,487 $ 12,935 $ 41,115
Regulated Services
Natural gas distribution (2,836) (2,381) 17,422 18,333 26,497 27,641
Natural gas transmission 7,032 7,060 13,994 13,614 28,271 28,400
Other (10) (207) (10) (303) (179) (840)
Total Regulated Services 4,186 4,472 31,406 31,644 54,589 55,201
Other operations 8,452 2,256 16,343 5,947 18,731 10,976
NET INCOME $ 23,070 $ 16,196 $ 66,434 $ 57,078 $ 86,255 $107,292
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUESTAR CORPORATION AND SUBSIDIARIES
June 30, 1999
(Unaudited)
Results of Operations
Questar Market Resources
Questar Exploration and Production (USA), Celsius Energy Resources
Ltd. (Canada), Wexpro, Questar Gas Management and Questar Energy
Trading, collectively, (Market Resources) conduct the Company's
exploration and production, gas gathering and processing, and energy
marketing operations. Following is a summary of Market Resources'
financial results and operating information.
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30 June 30 June 30
1999 1998 1999 1998 1999 1998
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $ 95,848 $ 94,214 $190,491 $192,340 $380,942 $389,585
From affiliated companies 18,374 19,744 39,577 36,612 80,288 67,030
Total revenues $114,222 $113,958 $230,068 $228,952 $461,230 $456,615
Operating income $ 16,911 $ 14,586 $ 31,254 $ 28,941 $ 23,842 $ 57,689
Net income 10,432 9,468 18,685 19,487 12,935 41,115
OPERATING STATISTICS
Production volumes
Natural gas (in million cubic feet) 15,341 11,995 30,389 24,089 57,609 47,893
Oil and natural gas liquids
(in thousands of barrels) 715 717 1,462 1,371 2,985 2,795
Production revenue
Natural gas (per thousand
cubic feet) $ 1.93 $ 1.97 $ 1.90 $ 1.97 $ 1.89 $ 1.98
Oil and natural gas liquids
(per barrel) $ 13.99 $ 12.87 $ 12.28 $ 13.65 $ 12.05 $ 15.38
Marketing volumes in energy
equivalent decatherms (in
thousands of decatherms) 26,158 27,007 60,317 55,356 118,474 121,886
Natural gas gathering volumes (in
thousands of decatherms)
For unaffiliated customers 21,835 17,780 42,126 36,303 78,731 66,957
For Questar Gas 8,682 7,048 16,919 15,599 31,213 28,703
For other affiliated customers 4,560 4,515 9,119 8,784 18,055 17,118
Total gathering 35,077 29,343 68,164 60,686 127,999 112,778
Gathering revenue (per decatherm) $ 0.15 $ 0.17 $ 0.15 $ 0.16 $ 0.15 $ 0.17
</TABLE>
Revenues from Market Resource operations were slightly higher in the
3-, 6- and 12-month period ended June 30, 1999 when compared with the
same periods of 1998 due primarily to increases in natural gas
production. Gas production was 26% higher in the first half of 1999
because of a large 1998 reserve acquisition and expanded development
activities. Higher prices for oil and natural gas liquids (NGL)
benefited the second quarter of 1999.
Questar Exploration and Production (Questar E & P) and Wexpro have
commenced a drilling program in an area known as the Pinedale
Anticline in Sublette County, Wyoming. Three successful wells drilled
by Ultra Petroleum had initial daily production rates ranging between
4 MMcf and 15MMcf and currently are producing about 2.5 MMcf per day.
In June 1999, Questar E & P acquired 50% of Ultra's interest in the
Pinedale Anticline and now operates the three wells. Questar E & P
has a working interest of approximately 60% in 13,500 gross acres in
the area and Wexpro has a similar working interest in 2,000 gross
acres. Depending on permitting issues and the results of a well
currently being drilled, the Company envisions a multi-rig drilling
program involving 135 to 350 drilling locations.
Market Resources uses hedging to secure commodity prices. The hedges
for gas change from 53% of production at $1.87 per Mcf in August to
36.5% of production at $1.92 per Mcf in December, net back to the
well. Approximately 57% of oil production, excluding oil produced by
Wexpro, is hedged at $14.55 per bbl, net back to the well, through
the end of 1999.
Wexpro Co., which manages and develops cost-of-service gas reserves
for Questar Gas, reported a 15% increase in earnings in the first
half. Wexpro benefited from an increase in investment base.
Lower oil and NGL prices resulted in reduced margins generated by
processing plants in the first half of 1999. Reduced value of
firm-transportation contracts caused a decrease in marketing margins
in the first half of 1999. Marketing volumes were 9% higher in the
first half of 1999 compared to the prior year.
Questar Regulated Services
Questar Gas and Questar Pipeline conduct the Company's regulated
services of natural gas distribution, transmission and storage.
Natural Gas Distribution
Questar Gas conducts the Company's natural gas distribution
operations. Following is a summary of financial results and
operating information.
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1999 1998 1999 1998 1999 1998
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $ 69,952 $ 74,268 $242,045 $266,057 $451,742 $474,887
From affiliates 222 119 431 119 1,381 876
Total revenues 70,174 74,387 242,476 266,176 453,123 475,763
Natural gas purchases 36,741 41,965 135,463 160,063 256,404 282,116
Revenues less natural gas
purchases $ 33,433 $ 32,422 $107,013 $106,113 $196,719 $193,647
Operating income (loss) $ (2,470) $ (1,541) $ 35,337 $ 36,670 $ 56,117 $ 56,948
Net income (loss) (2,836) (2,381) 17,422 18,333 26,497 27,641
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 14,145 13,178 46,570 47,492 82,309 84,677
Industrial sales 2,282 2,267 5,222 5,097 9,806 9,614
Transportation for industrial
customers 11,800 13,115 25,151 27,947 52,665 54,683
Total deliveries 28,227 28,560 76,943 80,536 144,780 148,974
Natural gas revenue (per decatherm)
Residential and commercial $ 4.15 $ 4.70 $ 4.65 $ 5.06 $ 4.88 $ 5.02
Industrial sales 2.83 2.90 2.93 3.01 3.01 2.92
Transportation for industrial
customers 0.13 0.11 0.13 0.11 0.13 0.12
Heating degree days
Actual 946 899 3,242 3,291 5,413 5,623
Normal 741 741 3,484 3,484 5,801 5,801
Colder (warmer) than normal 28% 21% (7%) (6%) (7%) (3%)
Number of customers at June 30,
Residential and commercial 665,221 642,399
Industrial 1,356 1,297
Total 666,577 643,696
</TABLE>
Revenues less natural gas purchases, or nongas-cost margin, increased
3% in the second quarter and 1% in the first half of 1999 compared
with the same periods of 1998. The increase in the margin resulted
primarily from gas volumes delivered to new customers and more than
offset the effect of lower usage per customer. Temperature adjusted
usage per customer was approximately 3 decatherms lower in the first
half of 1999 compared with the prior year period. Temperatures, as
measured in degree days, were warmer than normal in the 6-and
12-months periods and colder than normal in the second quarter.
However, the impact on earnings of temperature variations from normal
has been mitigated by a weather-normalization adjustment.
The number of customers served by Questar Gas grew by 22,881 or 3.6%
from a year ago to 666,577 as of June 30, 1999. The number of
customer additions for the year ending December 31, 1999 is expected
to be between 20,000 to 22,000.
Volumes delivered to industrial customers decreased 8% in the first
half of 1999 when compared with the same period of 1998 because a
major steel-producing customer reduced operations. The margin earned
from gas delivered to industrial customers is substantially lower
than from gas delivered to residential and commercial customers.
Questar Gas' natural gas purchases decreased in the 1999 periods when
compared with the 1998 periods due to lower sales volumes and lower
gas costs. Sales volumes were 2% lower in the first half of 1999 due
to lower usage per customer. The commodity or gas costs in Utah
rates decreased from $2.27 per Decatherm in the first half of 1998 to
$1.72 per Decatherm in the first half of 1999. The reduction
reflects lower prices paid to producers. The Company files for
adjustment of purchased-gas costs with the Utah and Wyoming Public
Service Commissions on a semiannual basis.
Questar Gas filed an application on November 25, 1998 with the Public
Service Commission of Utah (PSCU) to recover the costs associated
with a contract for the removal of carbon dioxide from the gas
stream. The contract covers the costs of a new plant being
constructed and operated by an affiliate of Questar Gas. The
Division of Public Utilities and the Committee of Consumer Services
have filed testimony questioning the Company's decision to enter into
the contract and opposing pass-through rate coverage for the costs
under the contract. The Committee objected to any cost recovery in
rates for the plant processing costs. Hearings were held on the
issues June 22 and 23. Briefs are to be filed by August 27 and reply
briefs are due September 13. The contract's annual cost of service
ranges between $7.5 - $8.5 million.
Declining usage of gas per customer and increasing operating costs
may cause Questar Gas to file a general rate case. The last general
rate case filed by the Questar Gas was in 1995.
Cost savings from consolidating operations enabled Questar Gas to
file on June 10, 1999 for a decrease in general rates in Wyoming.
The decrease is in effect on an interim basis pending hearings and
will reduce annualized revenues by $735,000.
Questar Gas requested pass-through commodity cost increases in Utah
and Wyoming in the second quarter of 1999. The Company was authorized
to collect on an interim basis beginning in the third quarter of
1999, annualized revenues of $16,865,000 in Utah rates and $380,262
in Wyoming rates.
Natural Gas Transmission
Questar Pipeline conducts the Company's natural gas transmission and
storage operations. Following is a summary of financial results and
operating information.
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1999 1998 1999 1998 1999 1998
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $ 9,754 $ 9,088 $ 18,775 $ 18,153 $ 37,778 $ 36,633
From affiliates 17,282 17,511 35,427 35,695 71,133 70,024
Total revenues $ 27,036 $ 26,599 $ 54,202 $ 53,848 $108,911 $106,657
Operating income $ 13,908 $ 14,046 $ 26,972 $ 26,852 $ 53,318 $ 51,885
Net income 7,032 7,060 13,994 13,614 28,271 28,400
OPERATING STATISTICS
Natural gas transportation volumes (in
thousands of decatherms)
For unaffiliated customers 34,765 31,289 60,711 64,067 117,391 119,346
For Questar Gas 26,084 27,051 61,719 65,382 103,838 107,418
For other affiliated customers 5,078 7,549 8,458 12,407 22,929 32,395
Total transportation 65,927 65,889 130,888 141,856 244,158 259,159
Transportation revenue
(per decatherm) $ 0.26 $ 0.26 $ 0.27 $ 0.25 $ 0.29 $ 0.27
</TABLE>
Revenues were 2% higher in the second quarter of 1999 and 1% higher
in the first half of 1999 due primarily to increased firm-storage
revenues. Billings from an expansion of the Clay Basin storage
complex began in May of 1998. However, the full impact of higher
storage revenues was partially offset by lower firm-transportation
revenues. Average daily demand in the first half of 1999 was 88,000
decatherms or 8% lower as a result of the expiration of several
firm-transportation contracts.
Earnings from unconsolidated affiliates includes the Company's share
of earnings reported by TransColorado Gas Transmission Co. and
Overthrust Pipeline Co. Phase II of the TransColorado Pipeline was
placed into service March 31, 1999. Earnings prior to the second
quarter of 1999 were attributable primarily to AFUDC (captialized financing
costs). The TransColorado Pipeline is generating operating losses of about
$700,000 a month, representing Questar Pipeline's interest. Phase II
of the pipeline has flowed as much as 80 MDth per day, but at a
discounted rate. The cost of the pipeline, including Phase I, has
recently been revised upward to about $308 million. Questar Pipeline
has guaranteed $100 million or 50% of a TransColorado Gas
Transmission Co. bank loan used to finance construction of the
pipeline.
In the second quarter of 1999, Questar Pipeline reversed a $2.5
million contingency reserve related to completion of the
TransColorado Pipeline.
Consolidated Results of Operations
Consolidated revenues were lower in the 1999 periods presented when
compared with the 1998 periods due primarily to reduced rates and
decreased usage per customer by gas-distribution customers. The
lower rates reflect a reduction of the gas-cost component collected
from gas-distribution customers. Revenues from the sale of natural
gas were higher in the 3-and 6-month periods of 1999 because higher
production more than offset lower prices.
A 16% drop in natural gas and other product purchases was primarily
the result of lower sales of gas distribution volumes and lower gas
costs in the first half of 1999. The gas cost included in
distribution rates in Utah declined from $2.27 per decatherm to $1.72
per decatherm in 1999.
Operating and maintenance expenses were lower in the 3- and 6- month
periods of 1999 when compared with the same periods in 1998. The
labor-cost savings associated with an early retirement program for
eligible Regulated Services employees plus capitalization of labor
costs included with construction projects more than offset the
effects of adding gas and oil properties through acquisitions, adding
gas-distribution customers and incurring data processing and
communications related costs for such programs as Year 2000
compliance. Labor-cost savings have amounted to about $2 million per
quarter in 1999 as a results of the early retirement program.
Depreciation expenses were higher in the 1999 periods when compared
to the 1998 periods primarily due to increased investment in
property, plant and equipment and increased gas production. The
full-cost amortization rate for combined U.S. and Canadian operations
was $.82 per equivalent Mcf for the first half of 1999 and $.83 in
1998. The decrease in other taxes in the 1999 periods was the result
of lower production taxes and payroll taxes.
Interest and other income was higher 1999 periods presented compared
with the prior year periods primarily due to increased selling prices
and the number of shares of Nextel Communications sold. Questar sold
702,469 shares in the first half of 1999 and realized a pretax gain
of $19.4 million. The Company sold 190,000 shares and a pretax gain
of $4.1 million a year earlier. The sales resulted in after-tax
gains of $11.8 million or $.14 per share in 1999 and $2.4 million and
$.03 per share in 1998. A $5.7 million pretax gain was recorded in
the second quarter of 1998 on an exchange of an interest in a local
affiliate for shares of Nextlink.
Debt expense was 13% higher in the first half of 1999 as a result of
increased borrowings beginning in the second half of 1998 and
extending into the first half of 1999 to fund capital projects.
The effective income tax rate for the first half was 34.1% in 1999
and 32.1% in 1998. The Company recognized $3,547,000 of
production-related tax credits in the 1999 period and $3,910,000 in
the 1998 period.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities of $141,223,000 for the
first half of 1999 was $33,588,000 less than was generated in the
same period of 1998. The decrease in cash flow resulted primarily
from timing differences in the collection of gas costs by
gas-distribution operations and payment on accounts to vendors.
Investing Activities
A comparison of capital expenditures for the first half of 1999 and
1998 plus an estimate for calendar year 1999 is below. Projected
1999 spending includes $192 million designated for a gas and oil
reserve acquisition, if the Company is the successful bidder.
<TABLE>
<CAPTION>
Estimate
Actual 12 Months
6 Months Ended Ended
June 30, Dec. 31,
1999 1998 1999
(In Thousands)
<S> <C> <C> <C>
Market Resources $53,791 $41,032 $353,600
Regulated Services
Natural gas distribution 19,960 24,974 62,500
Natural gas transmission 16,661 20,761 76,100
Other 655 324 3,800
Total Regulated Services 37,276 46,059 142,400
Other operations 5,149 6,430 49,500
$96,216 $93,521 $545,500
</TABLE>
Financing Activities
The Company used cash flow generated from operations, from the sale
of investments and from a net increase in long-term debt to fund
capital expenditures, reduce short-term borrowings, repurchase shares
of its common stock and pay dividends to holders of common stock. The
Company intends to finance 1999 capital expenditures through net cash
provided from operating activities, bank borrowings and issuing
long-term debt. If the Company completes a large gas and oil reserve
acquisition, it may issue equity to pay for a portion of the
transaction.
In April, the Company announced plans to repurchase up to $50 million
worth of its shares over the next two years. It intends to use the
proceeds from the sales of Nextel shares to fund a portion of those
repurchases. The Company had repurchased 184,800 shares through the
first part of August.
Short-term borrowings amounted to $112.1 million of commercial paper
at June 30, 1999 and $77.6 million at June 30, 1998. The Company has
bank lines of credit, which serve as backup to borrowings made under
the commercial paper program. The Company's lines of credit borrowing
capacity is $245 million. In 1999, the Market Resources' group
entered into a senior revolving credit facility with a syndication of
banks and having a $295 million capacity. Market Resources had
borrowed $228 million as of June 30, 1999 under this arrangement.
Questar Pipeline has a medium-term note program in place, but has not
borrowed under this arrangement in 1999.
Year 2000 Issues
Questar Corporation established a team to address the issue of
computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000 (Y2K). The team
has identified 56 projects that are in varying stages of remediation
and the scope includes Questar and its affiliated companies. The
projects fit into the general classifications of application
software, infrastructure, non-information technology equipment and
critical third-party associations. Subsequent to submitting the
first quarter 1999 10-Q, four applications software projects were
deemed insignificant and removed from the list and an infrastructure
project was added. Questar estimates that Y2K remediation will cost
$5.1 million and expects to be Y2K ready before the end of 1999.
Failure to correct a material Y2K problem could result in an
interruption, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition.
The infrastructure section of the plan addresses hardware and systems
software other than applications software. Currently, there are 20
projects identified: 0 in start-up, 4 in assessment, 3 in
remediation, 1 in testing and 12 completed and deemed to be Y2K
ready.
The applications software section addresses either the conversion or
replacement of applications software that is not Y2K compliant.
Currently, there are 35 projects in this section: 4 in start-up, 1 in
assessment, 3 in remediation, 3 in testing and 24 completed and
deemed to be Y2K compliant.
Non-information technology equipment is considered to be one project
and addresses hardware, software and associated embedded computer
chips used in the operation of all facilities operated by the
Company. Because this section has unique characteristics and is
large, the Company has employed the services of a consultant to
assist in the effort. The project is currently scheduled to be
completed by September 30, 1999.
Inquiries of critical third parties have been taking place with more
contacts scheduled. Contacting parties is scheduled to be completed
by the end of the third quarter 1999. Contingency plans for dealing
with third-party issues will be developed by the end of 1999.
Additional information regarding Questar's' Y2K program can be viewed
in Form 10-K for December 31, 1998, filed with the Securities and
Exchange Commission or on Questar's website at www.questarcorp.com.
Forward-Looking Statements
This 10-Q contains forward-looking statements about future
operations, capital spending, regulatory matters and expectations of
Questar. According to management, these statements are made in good
faith and are reasonable representations of the Company's expected
performance at the time. Actual results may vary from management's
stated expectations and projections due to a variety of factors.
Important assumptions and other significant factors that could cause
actual results to differ materially from those discussed in
forward-looking statements include changes in: general economic
conditions, gas and oil prices and supplies, competition, regulatory
issues, weather conditions, availability of gas and oil properties
for sale and other factors beyond the control of the Company. These
other factors include the rate of inflation, the adverse effects of
failure to achieve Y2K compliance, quoted price of securities
available for sale and adverse changes in the business or financial
condition of the Company.
These factors are not necessarily all of the important factors that
could cause actual results to differ significantly from those
expressed in any forward-looking statements. Other unknown or
unpredictable factors could also have a significant adverse effect on
future results. The Company does not undertake an obligation to
update forward-looking information contained herein or elsewhere to
reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking information.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
a. Questar Corporation (Questar or the Company) and several
affiliates are named defendants in an action filed by Jack J.
Grynberg, an independent producer, in Colorado's federal district
court and have officially been served copies of the complaint. The
action was filed under the Federal False Claims Act in early 1998, but
the complaint was sealed until the Department of Justice declined to
prosecute it. The complaint is one of approximately 76 actions filed
by the producer against pipelines and their affiliates. The district
court granted the motion filed by the Questar defendants to stay the
proceedings pending a determination of procedural issues relating to
the consolidation of the cases. The producer's complaints allege
mismeasurement of the heating content of natural gas volumes and
understatement of the value of gas on which royalty payments are due
the federal government. The complaint filed against the Questar
defendants does not include a claim for specific monetary damages.
b. Questar affiliates are also involved in two other actions
filed by Mr. Grynberg. One case is currently on appeal to the Tenth
Circuit Court of Appeals, which has not yet scheduled a hearing date.
This case was tried before a Wyoming federal district jury in late
1994. The jury awarded several million dollars to Mr. Grynberg, but
the presiding federal district court judge, in June of 1998, entered a
judgment that overturned most provisions of the jury verdict. Mr.
Grynberg is appealing the trial judge's action.
Pending the resolution of the appeal by the Tenth Circuit, the
same federal district court judge has stayed action in another case
filed by Mr. Grynberg against Questar Gas and its affiliates alleging
fraud and antitrust violations in addition to the same claims heard in
the first case for a subsequent period of time.
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibits have been filed as part of this
report:
Exhibit No. Exhibit
10.1. Questar Corporation Annual Management Incentive Plan as
amended and restated effective May 18, 1999.
10.4. Questar Corporation Long-Term Stock Incentive Plan as
amended and restated efffective May 18, 1999.
b. The Company did not file a Current Report on Form 8-K during
the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
QUESTAR CORPORATION
(Registrant)
August 13, 1999 /s/R. D. Cash
(Date) R. D. Cash
Chairman of the Board, President
and Chief Executive Officer
August 13, 1999 /s/ S. E. Parks
(Date) S. E. Parks
Vice President, Treasurer and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Exhibit
10.1. Questar Corporation Annual Management Incentive Plan as
amended and restated effective May 18, 1999.
10.4. Questar Corporation Long-Term Stock Incentive Plan as
amended and restated efffective May 18, 1999.
QUESTAR CORPORATION
ANNUAL MANAGEMENT INCENTIVE PLAN
(As amended and restated effective May 18, 1999)
Paragraph 1. Name. The name of this Plan is the Questar
Corporation Annual Management Incentive Plan (the Plan).
Paragraph 2. Purpose. The purpose of the Plan is to
provide an incentive to officers and key employees of Questar
Corporation (the Company) for the accomplishment of major
organizational and individual objectives designed to further the
efficiency, profitability, and growth of the Company.
Paragraph 3. Administration. The Management Performance
Committee (Committee) of the Board of Directors shall have full power
and authority to interpret and administer the Plan. Such Committee
shall consist of no less than three disinterested members of the Board
of Directors.
Paragraph 4. Participation. Within 60 days after the
beginning of each year, the Committee shall nominate Participants from
the officers and key employees for such year. The Committee shall
also establish a target bonus for the year for each Participant
expressed as a percentage of base salary or specified portion of base
salary. Participants shall be notified of their selection and their
target bonus as soon as practicable.
Paragraph 5. Determination of Performance Objectives.
Within 60 days after the beginning of each year, the Committee shall
establish target, minimum, and maximum performance objectives for the
Company and for its major operating subsidiaries and shall determine
the manner in which the target bonus is allocated among the
performance objectives. The Committee shall also recommend a dollar
maximum for payments to Participants for any Plan year. The Board of
Directors shall take action concerning the recommended dollar maximum
within 60 days after the beginning of the Plan year. Participants
shall be notified of the performance objectives as soon as practicable
once such objectives have been established.
Paragraph 6. Determination and Distribution of Awards. As
soon as practicable, but in no event more than 90 days after the close
of each year during which the Plan is in effect, the Committee shall
compute incentive awards for eligible participants in such amounts as
the members deem fair and equitable, giving consideration to the
degree to which the Participant's performance has contributed to the
performance of the Company and its affiliated companies and using the
target bonuses and performance objectives previously specified.
Aggregate awards calculated under the Plan shall not exceed the
maximum limits approved by the Board of Directors for the year
involved. To be eligible to receive a payment, the Participant must be
actively employed by the Company or an affiliate as of the date of
distribution except as provided in Paragraph 8.
Amounts shall be paid (less appropriate withholding taxes
and FICA deductions) according to the following schedule:
Award Distribution Schedule
Percent of
Award Date
Initial Award 75% As soon as possible after initial
award is (First Year determined
of Participation)
25 One year after initial award is
determined
100%
Subsequent Awards 50% As soon as possible after award is
determined
25 One year after award is determined
25 Two years after award is determined
100%
Paragraph 7. Restricted Stock in Lieu of Cash. For 1992
and subsequent years, participants who have a target bonus of $10,000
or higher shall be paid all deferred portions of such bonus with
restricted shares of the Company's common stock under the Company's
Long-Term Stock Incentive Plan. Such stock shall be granted to the
participant when the initial award is determined, but shall vest free
of restrictions according to the schedule specified above in Paragraph 6.
Paragraph 8. Termination of Employment.
(a) In the event a Participant ceases to be an employee
during a year by reason of death, disability, approved retirement, an
award, or a reduction in force, if any, determined in accordance with
Paragraph 6 for the year of such event, shall be reduced to reflect
partial participation by multiplying the award by a fraction equal to
the months of participation during the applicable year through the
date of termination rounded up to whole months divided by 12.
For the purpose of this Plan, approved retirement shall mean
any termination of service on or after age 60, or, with approval of
the Board of Directors, early retirement under the Company's qualified
retirement plan. For the purpose of this Plan, disability shall mean
any termination of service that results in payments under the
Company's long-term disability plan. A reduction in force, for the
purpose of this Plan, shall mean any involuntary termination of
employment due to the Company's economic condition, sale of assets,
shift in focus, or other reasons independent of the Participant's
performance.
The entire amount of any award that is determined after the
death of a Participant shall be paid in accordance with the terms of
Paragraph 11.
In the event of termination of employment due to disability,
approved retirement, or a reduction in force, a Participant shall be
paid the undistributed portion of any prior awards in his final
paycheck or in accordance with the terms of elections to voluntarily
defer receipt of awards earned prior to February 12, 1991, or deferred
under the terms of the Company's Deferred Compensation Plan. In the
event of termination due to disability, approved retirement, or a
reduction in force, any shares of common stock previously credited to
a Participant shall be distributed free of restrictions during the
last month of employment. The current market value (defined as the
closing price for the stock on the New York Stock Exchange on the date
in question) of such shares shall be included in the Participant's
final paycheck. Such Participant shall be paid the full amount of any
award (adjusted for partial participation) declared subsequent to the
date of such termination within 30 days of the date of declaration.
Any partial payments shall be made in cash.
(b) In the event a Participant ceases to be an employee
during a year by reason of a change in control, he shall be entitled
to receive all amounts deferred by him prior to February 12, 1991, and
all undistributed portions for prior Plan years. He shall also be
entitled to an award for the year of such event as if he had been an
employee throughout such year. The entire amount of any award for
such year shall be paid in a lump sum within 60 days after the end of
the year in question. Such amounts shall be paid in cash.
A Change in Control of the Company shall be deemed to have
occurred if (i) any "Acquiring Person" (as such term is defined in the
Rights Agreement dated as of February 13, 1996, between the Company
and ChaseMellon Shareholder Services L.L.C. ("Rights Agreement")) is
or becomes the beneficial owner (as such term is used in Rule 13d-3
under the Securities Exchange Act of 1934) of securities of the
Company representing 25 percent or more of the combined voting power
of the Company; or (ii) the following individuals cease for any reason
to constitute a majority of the number of directors then serving:
individuals who, as of May 19, 1998, constitute the Company's Board of
Directors ("Board") and any new director (other than a director whose
initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company)
whose appointment or election by the Board or nomination for election
by the Company's stockholders was approved or recommended by a vote of
at least two-thirds of the directors then still in office who either
were directors on May 19, 1998, or whose appointment, election or
nomination for election was previously so approved or recommended; or
(iii) the Company's stockholders approve a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company with
any other corporation, other than a merger or consolidation that would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof) at least 60 percent of
the combined voting power of the securities of the Company or such
surviving entity or its parent outstanding immediately after such
merger or consolidation, or a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25 percent or
more of the combined voting power of the Company's then outstanding
securities; or (iv) the Company's stockholders approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 60 percent of the combined
voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale. A
Change in Control, however, shall not be considered to have occurred
until all conditions precedent to the transaction, including but not
limited to, all required regulatory approvals have been obtained.
Paragraph 9. Interest on Previously Deferred Amounts.
Amounts voluntarily deferred prior to February 12, 1991, shall be
credited with interest from the date the payment was first available
in cash to the date of actual payment. Such interest shall be
calculated at a monthly rate using the typical rates paid by major
banks on new issues of negotiable Certificates of Deposit in the
amounts of $1,000,000 or more for one year as quoted in The Wall
Street Journal on the first day of the relevant calendar month or the
next preceding business day if the first day of the month is a
non-business day.
Paragraph 10. Coordination with Deferred Compensation Plan.
Some Participants are entitled to defer the receipt of their cash
bonuses under the terms of the Company's Deferred Compensation Plan,
which became effective November 1, 1993. Any cash bonuses deferred
pursuant to the Deferred Compensation Plan shall be accounted for and
distributed according to the terms of such plan and the choices made
by the Participant.
Paragraph 11. Death and Beneficiary Designation. In the
event of the death of a Participant, any undistributed portions of
prior awards shall become payable. Amounts previously deferred by the
Participant, together with credited interest to the date of death,
shall also become payable. Each Participant shall designate a
beneficiary to receive any amounts that become payable after death
under this Paragraph or Paragraph 8. In the event that no valid
beneficiary designation exists at death, all amounts due shall be paid
as a lump sum to the estate of the Participant. Any shares of
restricted stock previously credited to the Participant shall be
distributed to the Participant's beneficiary or, in the absence of a
valid beneficiary designation, to the Participant's estate, at the
same time any cash is paid.
Paragraph 12. Amendment of Plan. The Company's Board of
Directors, at any time, may amend, modify, suspend, or terminate the
Plan, but such action shall not affect the awards and the payment of
such awards for any prior years. The Company's Board of Directors
cannot terminate the Plan in any year in which a change of control has
occurred without the written consent of the Participants. The Plan
shall be deemed suspended for any year for which the Board of
Directors has not fixed a maximum dollar amount available for award.
Paragraph 13. Nonassignability. No right or interest of
any Participant under this Plan shall be assignable or transferable in
whole or in part, either directly or by operation of law or otherwise,
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy, or in any other manner, and no right
or interest of any Participant under the Plan shall be liable for, or
subject to, any obligation or liability of such Participant. Any
assignment, transfer, or other act in violation of this provision
shall be void.
Paragraph 14. Effective Date of the Plan. The Plan shall
be effective with respect to the fiscal year beginning January 1,
1984, and shall remain in effect until it is suspended or terminated
as provided by Paragraph 12.
QUESTAR CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As Amended and Restated May 18, 1999)
Section 1. Purpose
The Questar Corporation Long-Term Stock Incentive Plan (the
"Plan") is designed to encourage officers and selected key employees
of and consultants to Questar Corporation and its affiliated companies
(the "Company") to acquire a proprietary interest in the Company, to
generate an increased incentive to contribute to the Company's future
growth and success, and to enhance the Company's ability to attract
and retain talented officers and employees. Accordingly, the Company,
during the term of this Plan, may grant incentive stock options,
nonqualified stock options, stock appreciation rights, restricted
stock, performance shares, and other awards valued in whole or in part
by reference to the Company's stock.
Section 2. Definitions
"Affiliate" shall mean any business entity in which the Company
directly or indirectly has an equity interest deemed significant by
the Company's Board of Directors.
"Approved Retirement" shall mean any retirement of service on or
after age 60 or, with approval of the Board, early retirement under
the Company's Retirement Plan.
"Award" shall mean a grant or award under Section 6 through 10,
inclusive, of the Plan, as evidenced in a written document delivered
to a Participant as provided in Section 12(b).
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" shall mean the Management Performance Committee of
the Board of Directors.
"Common Stock" or "Stock" shall mean the Common Stock, no par
value, of the Company. The term shall also include any Common Stock
Purchase Rights attached to the Common Stock.
"Company" shall mean Questar Corporation on a consolidated basis.
"Designated Beneficiary" shall mean the beneficiary designated by
the Participant, in a manner determined by the Committee, to receive
amounts due the Participant in the event of the Participant's death.
In the absence of an effective designation by the Participant,
Designated Beneficiary shall mean the Participant's estate.
"Disability" shall mean permanent and total disability within the
meaning of Section 105(d)(4) of the Code.
"Employee" shall mean any officer or key employee of or
consultant to the Employer.
"Employer" shall mean the Company and any Affiliate.
"Fair Market Value" shall mean the closing price of the Company's
Common Stock reported on the New York Stock Exchange on the date in
question, or, if the Common Stock shall not have been traded on such
date, the closing price on the next preceding day on which a sale
occurred.
"Family Member" shall mean the Participant's spouse, children,
grandchildren, parents, siblings, nieces and nephews.
"Fiscal Year" shall mean the fiscal year of the Company.
"Incentive Stock Option" shall mean a stock option granted under
Section 6 that is intended to meet the requirements of Section 422 of
the Code.
"Nonqualified Stock Option" shall mean a stock option granted
under Section 6 that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified
Stock Option.
"Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
"Payment Value" shall mean the dollar amount assigned to a
Performance Share which shall be equal to the Fair Market Value of the
Common Stock on the day of the Committee's determination under Section
8(c)(2) with respect to the applicable Performance Period.
"Performance Period" or "Period" shall mean the period of years
selected by the Committee during which the performance is measured for
the purpose of determining the extent to which an Award of Performance
Shares has been earned.
"Performance Goals" shall mean the objectives established by the
Committee for a Performance Period, for the purpose of determining the
extent to which Performance Shares that have been contingently awarded
for such Period are earned.
"Performance Share" shall mean an Award granted pursuant to
Section 8 of the Plan expressed as a share of Common Stock.
"Reduction in Force" shall mean an involuntary termination of
employment due to economic conditions, sale of assets, shift in focus,
or other reasons independent of the Participant's performance.
"Restricted Period" shall mean the period of years selected by
the Committee during which a grant of Restricted Stock or Restricted
Stock Units may be forfeited to the Company.
"Restricted Stock" shall mean shares of Common Stock contingently
granted to a Participant under Section 9 of the Plan.
"Restricted Stock Unit" shall mean a fixed or variable dollar
denominated unit contingently awarded under Section 9 of the Plan.
"Right" shall mean a Stock Appreciation Right granted under
Section 7.
"Stock Unit Award" shall mean an Award of Common Stock or units
granted under Section 10.
"Termination of Employment" shall mean the date on which a
Participant actually notifies his/her supervisor of his/her
resignation, in the case of a voluntary termination; and the date on
which the Company actually notifies the Participant of his/her
termination, in the case of an involuntary termination. This term, as
defined, does not include termination of employment as the result of
an Approved Retirement, Disability, death, or Reduction in Force.
Section 3. Administration
The Plan shall be administered by the Committee. The Committee
shall have sole and complete authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation
of the Plan, and to interpret the terms and provisions of the Plan.
The Committee's decisions shall be binding upon all persons, including
the Company, stockholders, an Employer, Employees, Participants and
Designated Beneficiaries.
Section 4. Eligibility
Awards may only be granted to officers and key employees of or
consultants to the Company or any Affiliate who have the capacity to
contribute to the success of the Company. When selecting Participants
and making Awards, the Committee may consider such factors as the
Employee's functions and responsibilities and the Employee's past,
present and future contributions to the Company's profitability and
growth.
Neither the members of the Committee nor any member of the Board
who is not an Employee of the Company shall be eligible to receive
awards.
Nothing contained in the Plan or in any individual agreement
pursuant to the terms of the Plan shall confer upon any Participant
any right to continue in the employment of the Company or to limit in
any respect the right of the Company to terminate the Participant's
employment at any time and for any reason.
Section 5. Maximum Amount Available for Awards and Maximum Award
The aggregate number of shares of Common Stock that may be issued
under Awards pursuant to this Plan on an annual basis shall not exceed
one percent (1%) of the issued and outstanding shares of Common Stock
as of the first day of each calendar year for which the Plan is in
effect. Any shares available in any year using this formula that are
not granted under this Plan or other plans in which stock is awarded
to Employees would be available for use in subsequent years. Shares
of Common Stock may be made available from the authorized but unissued
shares of the Company or from shares reacquired by the Company,
including shares purchased in the open market. In the event that an
Option or Right expires or is terminated unexercised as to any shares
of Common Stock covered thereby, or any Award in respect of shares is
forfeited for any reason under the Plan, such shares, to the extent
not precluded by applicable law or regulation, shall be again
available for Awards pursuant to the Plan.
In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value
or other similar corporate event affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential
benefits intended to be made available under this Plan, then the
Committee, in its sole discretion, may take action. The Committee may
adjust any or all of the number and kind of shares that thereafter may
be awarded or optioned and sold or made the subject of Rights under
the Plan, the number and kind of shares subject to outstanding Options
and other Awards, and the grant, exercise or conversion price with
respect to any of the foregoing and/or, if deemed appropriate, make
provision for a cash payment to a Participant or a person who has an
outstanding Option or other Award.
There is a maximum of 100,000 shares that can be the subject of
Awards granted to any single Participant in any given fiscal year.
Section 6. Stock Options
(a) Grant. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Employees to
whom Options shall be granted, the number of shares to be covered by
each Option, the option price therefor and the conditions and
limitations, applicable to the exercise of the Option. The Committee
shall have the authority to grant Incentive Stock Options,
Nonqualified Stock Options, or both types of Options. In the case of
Incentive Stock Options, the terms and conditions of such grants shall
be subject to and comply with such rules as may be prescribed by
Section 422 of the Code and any implementing regulations.
(b) Option Price. The Committee shall establish the option
price at the time each Option is granted, which price shall not be
less than 100 percent of the Fair Market Value of the Common Stock on
the date of grant.
(c) Exercise. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee, in its sole
discretion, may specify in the applicable Award or thereafter;
provided, however, that in no event may any Option granted hereunder
be exercisable earlier than six months after the date of such grant or
after the expiration of ten years from the date of such grant. The
Committee may impose such conditions with respect to the exercise of
Options, including without limitation, any conditions relating to the
application of federal or state securities laws, as it may deem
necessary or advisable.
No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price is received by the
Company. Such payment may be made in cash, or its equivalent, or, if
and to the extent permitted by the Committee, by exchanging shares of
Common Stock owned by the optionee (which are not the subject of any
pledge or other security interest), or by a combination of the
foregoing, provided that the combined value of all cash and cash
equivalents and the Fair Market Value of any such Common Stock so
tendered to the Company, valued as of the date of such tender, is at
least equal to such option price.
(d) Transferability. Participants are allowed to transfer
vested Nonqualified Stock Options to Family Members or family trusts,
provided that such options were granted as of and after February 10,
1998 and provided that such transfers are made and transferred Options
are exercised in accordance with procedural rules adopted by the
Committee.
Section 7. Stock Appreciation Rights
(a) The Committee may, with sole and complete authority, grant
Rights in tandem with an Option. Rights shall not be exercisable
earlier than six months after grant, shall not be exercisable after
the expiration of ten years from the date of grant and shall have an
exercise price of not less than 100 percent of the Fair Market Value
of the Common Stock on the date of grant.
(b) A Right shall entitle the Participant to receive from the
Company an amount equal to the excess of the Fair Market Value of a
share of Common Stock on the exercise of the Right over the grant
price thereof. The Committee shall determine whether such Right shall
be settled in cash, shares of Common Stock or a combination of cash
and shares of Common Stock.
Section 8. Performance Shares
(a) The Committee shall have sole and complete authority to
determine the Employees who shall receive Performance Shares and the
number of such shares for each Performance Period and to determine the
duration of each Performance Period and the value of each Performance
Share. There may be more than one Performance Period in existence at
any one time, and the duration of Performance Periods may differ from
each other.
(b) Once the Committee decides to use Performance Shares, it
shall establish Performance Goals for each Period on the basis of
criteria selected by it. During any Period, the Committee may adjust
the Performance Goals for such Period as it deems equitable in
recognition of unusual or non-recurring events affecting the Company,
changes in applicable tax laws or accounting principles, or such other
factors as the Committee may determine.
(c) As soon as practicable after the end of a Performance
Period, the Committee shall determine the number of Performance Shares
that have been earned on the basis of performance in relation to the
established Performance Goals. Payment Values of earned Performance
Shares shall be distributed to the Participant or as soon as
practicable after the expiration of the Performance Period and the
Committee's determination. The Committee shall determine whether
Payment Values are to be distributed in the form of cash and/or shares
of Common Stock.
Section 9. Restricted Stock and Restricted Stock Units
(a) Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to whom
shares of Restricted Stock and Restricted Stock Units shall be
granted, the number of shares of Restricted Stock and the number of
Restricted Stock Units to be granted to each Participant, the duration
of the Restricted Period during which and the conditions under which
the Restricted Stock and Restricted Stock Units may be forfeited to
the Company, and the other terms and conditions of such Awards.
(b) Shares of Restricted Stock and Restricted Stock Units may
not be sold, assigned, transferred, pledged or otherwise encumbered,
except as herein provided, during the Restricted Period. At the
expiration of the Restricted Period, the Company shall deliver such
certificates to the Participant or the Participant's legal
representative. Payment for Restricted Stock Units shall be made to
the Company in cash and/or shares of Common Stock, as determined at
the sole discretion of the Committee.
Section 10. Other Stock Based Awards
(a) In addition to granting Options, Rights, Performance Shares,
Restricted Stock, Restricted Stock Units, the Committee shall have
authority to grant Stock Unit Awards to Participants that can be in
the form of Common Stock or units, the value of which is based, in
whole or in part, on the value of Common Stock. Subject to the
provisions of the Plan, Stock Unit Awards shall be subject to such
terms, restrictions, conditions, vesting requirements and payment
rules as the Committee may determine in its sole and complete
discretion at the time of grant.
(b) Any shares of Common Stock that are part of a Stock Unit
Award may not be assigned, sold, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued or, if
later, the date provided by the Committee at the time of grant of the
Stock Unit Award.
Stock Unit Awards may provide for the payment of cash
consideration by the person to whom such Award is granted or provide
that the Award, and any Common Stock to be issued in connection
therewith, if applicable, shall be delivered without the payment of
cash consideration, provided that for any Common Stock to be purchased
in connection with a Stock Unit Award the purchase price shall be at
least 50 percent of the Fair Market Value of such Common Stock on the
date such Award is granted.
Stock Unit Awards may relate in whole or in part to certain
performance criteria established by the Committee at the time of
grant. Stock Unit Awards may provide for deferred payment schedules
and/or vesting over a specified period of employment. In such
circumstances as the Committee may deem advisable, the Committee may
waive or otherwise remove, in whole or in part, any restriction or
limitation to which a Stock Unit Award was made subject at the time of
grant.
(c) In the sole and complete discretion of the Committee, an
Award, whether made as a Stock Unit Award under this Section 10 or as
an Award granted pursuant to Sections 6 through 9, may provide the
Participant with dividends or dividend equivalents (payable on a
current or deferred basis) and cash payments in lieu of or in addition
to an Award.
Section 11. Termination of Employment
The following provisions define a Participant's status in the
event of termination of employment:
(a) Options and Rights. If a Participant shall cease to be
employed by the Company or an Affiliate either directly or in a
consulting role, any Option and any Right granted to him under the
Plan shall terminate in accordance with the following rules:
(1) A Participant who terminates employment for any reason
other than Approved Retirement, Disability, death, or Reduction in
Force shall lose the right to exercise any Options or Rights as of
Termination of Employment. Any Options transferred to a Family Member
or family trust shall also be terminated as of the Participant's
Termination of Employment for any reason other than Approved
Retirement, Disability, death or Reduction in Force.
(2) A Participant who terminates employment as a result of
an Approved Retirement shall have a period of time specified in the
individual agreements by which Options are granted to exercise such
Options or Rights.
(3) A Participant who is Disabled shall have 12 months
after Termination of Employment in which to exercise an Option or
Right.
(4) A Participant whose employment is terminated as a
result of a Reduction in Force shall have 30 days from the date on
which he is notified of his termination to exercise any Options or
Rights that were vested as of the date of notification.
(5) Upon the death of a Participant during employment, the
Participant's Designated Beneficiary shall have 12 months from the
date of death to exercise the Participant's Option or Right. Upon the
death of a Participant after an Approved Retirement but within the
period specified by the Committee to exercise Options or Rights after
the Participant's Approved Retirement, the Participant's Designated
Beneficiary shall have the period specified by the Committee to
exercise the Option or Right.
(6) The foregoing notwithstanding, a Participant or the
Participant's Designated Beneficiary shall not be permitted to
exercise an Option or Right after the expiration date.
(b) Restricted Stock. If a Participant terminates employment
before the end of the Restricted Period for a reason other than death,
Approved Retirement, Disability, Change of Control, or Reduction in
Force, the Participant shall forfeit all shares of Restricted Stock as
of Termination of Employment. If a Participant terminates employment
as a result of death, Approved Retirement, Change of Control, or
Reduction in Force, the Committee, in its sole discretion, shall
determine what portion, if any, of the Restricted Stock shall be freed
from restrictions.
(c) Performance Shares and Other Awards. If a Participant
ceases to be an Employee before the end of any Performance Period as a
result of death, Approved Retirement, Disability, or Reduction in
Force, the Committee may authorize the payment to such Participant or
his Designated Beneficiary of a pro rata portion of the amount that
would have been paid to him had he continued as an Employee to the end
of the Performance Period. In the event a Participant terminates
employment for any other reason, any amounts for outstanding
Performance Periods shall be forfeited as of Termination of
Employment.
Section 12. General Provisions
(a) Withholding. The Employer shall have the right to deduct
from all amounts paid to a Participant in cash any taxes required by
law to be withheld in respect of Awards under this Plan. In the case
of payments of Awards in the form of Common Stock, the Committee shall
require the Participant to pay to the Employer the amount of any taxes
required to be withheld with respect to such Common Stock, or, in lieu
thereof, the Employer shall have the right to retain (or the
Participant may be offered the opportunity to elect to tender) the
number of shares of Common Stock whose Fair Market Value equals the
amount required to be withheld.
(b) Awards. Each Award shall be evidenced in writing delivered
to the Participant and shall specify the terms and conditions and any
rules applicable to such Award.
(c) Nontransferability. Except as provided in Section 6(d), no
Award shall be assignable or transferable, and no right or interest of
any Participant shall be subject to any lien, obligation or liability
of the Participant, except by will or the laws of descent and
distribution.
(d) No Rights as Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have
any rights as a stockholder with respect to any shares of Common Stock
to be distributed under the Plan until becoming the holder.
Notwithstanding the foregoing, in connection with each grant of
Restricted Stock hereunder, the applicable Award shall specify if and
to what extent the Participant shall not be entitled to the rights of
a stockholder in respect of such Restricted Stock.
(e) Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules
and regulations, and rights relating to the Plan, shall be determined
solely in accordance with the laws of Utah.
(f) Effective Date. Subject to the approval of the stockholders
of the Company, the Plan shall be effective on March 1, 1991. No
Options or Awards may be granted under the Plan, however, until the
Plan is approved by the Company's shareholders or after May 20, 2001.
(g) Amendment of Plan. The Board of Directors may amend,
suspend or terminate the Plan or any portion thereof at any time,
provided that no amendment shall be made without stockholder approval
if such approval is necessary to comply with any tax or regulatory
requirement, including for these purposes any approval requirement
that is a prerequisite for exemptive relief under Section 16(b) of the
Securities Exchange Act of 1934.
(h) Amendment of Award. The Committee may amend, modify or
terminate any outstanding Award with the Participant's consent at any
time prior to payment or exercise in any manner not inconsistent with
the terms of the Plan, including without limitation, to change the
date or dates as of which an Option or Right becomes exercisable; a
Performance Share is deemed earned; Restricted Stock becomes
nonforfeitable; or to cancel and reissue an Award under such different
terms and conditions as it determines appropriate.
Section 13. Change of Control.
In the event of a Change of Control of the Company, all Options,
Restricted Stock, and other Awards granted under the Plan shall vest
immediately.
A Change in Control of the Company shall be deemed to have
occurred if (i) any "Acquiring Person" (as such term is defined in the
Rights Agreement dated as of February 13, 1996, between the Company
and ChaseMellon Shareholder Services L.L.C. ("Rights Agreement")) is
or becomes the beneficial owner (as such term is used in Rule 13d-3
under the Securities Exchange Act of 1934) of securities of the
Company representing 25 percent or more of the combined voting power
of the Company; or (ii) the following individuals cease for any reason
to constitute a majority of the number of directors then serving:
individuals who, as of May 19, 1998, constitute the Company's Board of
Directors and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were
directors on May 19, 1998, or whose appointment, election or
nomination for election was previously so approved or recommended; or
(iii) the Company's stockholders approve a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company with
any other corporation, other than a merger or consolidation that would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof) at least 60 percent of
the combined voting power of the securities of the Company or such
surviving entity or its parent outstanding immediately after such
merger or consolidation, or a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25 percent or
more of the combined voting power of the Company's then outstanding
securities; or (iv) the Company's stockholders approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 60 percent of the combined
voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale. A
Change in Control, however, shall not be considered to have occurred
until all conditions precedent to the transaction, including but not
limited to, all required regulatory approvals have been obtained.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Questar Corporation Consolidated Statements of Income and Balance
Sheet for the period ended June 30, 1999, and is qualified in its entirety
by reference to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 109,479
<ALLOWANCES> 0
<INVENTORY> 23,262
<CURRENT-ASSETS> 141,703
<PP&E> 3,178,668
<DEPRECIATION> 1,424,361
<TOTAL-ASSETS> 2,097,077
<CURRENT-LIABILITIES> 260,899
<BONDS> 656,189
0
0
<COMMON> 302,521
<OTHER-SE> 634,124
<TOTAL-LIABILITY-AND-EQUITY> 2,097,077
<SALES> 0
<TOTAL-REVENUES> 455,672
<CGS> 0
<TOTAL-COSTS> 274,517
<OTHER-EXPENSES> 83,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,399
<INCOME-PRETAX> 100,882
<INCOME-TAX> 34,448
<INCOME-CONTINUING> 66,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,434
<EPS-BASIC> .80
<EPS-DILUTED> .80
</TABLE>
